New Study: Why Self-Employment Keeps Accelerating

Even with unemployment down to 4.3%, the number of self-employed Americans is rising—along with the population of free agents who earn six-figure incomes, according to a new report released today.

The total number of self-employed Americans increased to 40.8 million, up 2.8% from 2016, according to the report by MBO Partners, a firm in Herndon, Va., that provides back office support to independent workers. Independent workers now represent 31% of the private workforce, according to the study.

“There is a scarcity of talent,” says Gene Zaino, president and CEO of MBO Partners. “Americans are seeing that ‘Gee, I can go off on my own, have more security and make more money.’”

One trend that bodes well for the self-employed is that the number of full-time independent workers earning $100,000 or more rose to 3.2 million, up 4.9% since 2016. “You are seeing the number of people that have higher level skills that are in demand really growing rapidly,” says Zaino.

Companies increasingly prefer to hire freelancers over permanent employees so they can stay agile in a very fast-paced economy, Zaino explained.

“If you are in a very high-change environment, making full-time commitments is a bigger decision than just paying someone to get a project done,” he says.

While that isn’t good news for people who prefer traditional jobs, many independent workers are benefiting from the trend. The study’s results show that Americans are increasingly choosing independent work, rather than being forced into it. The number of “reluctant independents,” who would prefer a traditional job but can’t find one that is better than their current situation, dipped to 24%—down from 26% in 2016 and from 32% in 2012, MBO Partners found.

Gene Zaino, president and CEO of MBO Partners, has found that free agents view independent work as healthier for them than a corporate job.MBO Partners

In another key trend, more Americans are turning to independent work on an occasional basis, MBO Partners found. In a period of wage stagnation, many are tapping into the gig economy to supplement their income from other sources. The number of people who do independent work occasionally but at least once a month rose to 12.9 million, up from 10.5 million in 2016. This sector drove the growth of independent work in 2017. “Eighty percent of these people are supplementing a full-time job,” says Zaino.

Although the number of self-employed Americans rose overall, the number of full-time independents—those working at least 15 hours a week and average more than 35 hours a week in their own businesses--dipped slightly, a trend that tends to take place during periods of full employment, MBO Partners found. The number of full-time independents fell by 4.1% to 16.2 million.

The survey, conducted by Emergent Research and Rockbridge Associates in March, included just over 3,000 U.S. residents ages 21 and up.

Among the respondents, 38% are ages 21-37, 27% are ages 38 to 52 and 35% are ages 53 and up. Men made up 53% of the sample. Forty-one percent have a bachelor’s degree or higher.

The average income of full-time independents was $65,300. Millennials averaged $43,800 in annual income compared to $77,000 for older peers.

The top reasons for choosing independent work, according to respondents, were to be my own boss (77%) and flexibility (74%). Among all independent workers, 77% say they are happier working on their own than in a traditional job, and 64% said independent work is better for their health. “They have time to work out,” says Zaino. “They can work in the morning and then go for a jog in the afternoon. They can eat better. They’re not stressed out with traffic going back and forth.”

While working hard doesn’t necessarily cause stress, what does is not being in control, notes Zaino. “One of the main triggers of becoming an independent worker is to have control,” he says. “You’re in control of where you want to work, when you want to work, whom you want to work with. That reduces stress, which has a big impact on your health. When you’re part of a large institution doing traditional work, you’re not in control. I think the health aspects of independent work should be talked about more.”

Nonetheless, many respondents were well aware of the additional demands that independence may bring. The top challenges cited were not enough predictable income (50%) and planning for retirement (33%). With President Trump pushing for a repeal of the Affordable Care Act, there was a significant increase in the percentage of respondents citing concern about health care this year, with the percentage of those who had some level of concern hitting 40%, up from 33% last year.

Interestingly perceptions of independent work diverged sharply between people with traditional jobs and independent workers, highlighting a gap in risk tolerance that may underlie some of the debate about whether the rise of gig work is good for society or not. Among traditional workers, 65% said becoming independent or starting your own business seemed very risky while just 5% said it wasn’t at all risky.

In contrast, just 26% of independent workers viewed independent work as very risky; 19% said it was not at all risky. “These are the people that have skills they feel confident with,” says Zaino. “They feel more secure having multiple income streams than being vulnerable to a single employer.”

Given labor market trends, Americans who do have some tolerance for risk may find that their opportunities to stay relevant in the economy are better than for people who only thrive within the structure of a traditional job. MBO Partners predicts that by 2022, the total number of independent workers in the U.S. will hit 47.6 million, up from 40.9 million today—reflecting a projected 3.1% annual growth rate.

Fortunately, thanks to new digital platforms and other trends, “it’s been made easier for people who have valuable skills that are in demand to become more independent,” says Zaino. The key for all of us will be to figure out how to keep our skills sharp and relevant so we can make the most of the growing free agent economy.

I am the author of The Million-Dollar, One Person Business, a Random House book looking at how everyday Americans are breaking $1 million in revenue in businesses with no employees besides the owners. A former senior editor at Fortune Small Business magazine, I have written...